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Divergent house price data fuels "boom" controversy


Published: 25 September 2013 | Author: Bernard Clarke

Recent data on house prices from a variety of different sources has highlighted a wide range of price movements in different parts of the UK. 

Some of the differences between what the various indices show can be explained by the different methodologies used to compile them. There is, however, a broad consensus that, while prices are rising more strongly in London – and are also beginning to increase in some other locations – in many parts of the UK, they remain flat or are still falling. 

The uncertainty created by what the different indices are showing about price increases in different parts of the UK may be fuelling the controversy over whether or not the country is experiencing the start of a house price boom. 

A broad-based recovery

As we said in our recent market commentary, we believe that what we are seeing is not a boom, although it does indicate the beginning of what appears to be a healthy and seemingly broad-based recovery in activity.

Despite differences between what the various indices show, they present a broad picture in which, as our commentary says:    

"Market sentiment has changed quite abruptly over recent months, and…other parts of the UK – not just London and the south east – are now beginning to see a recovery."

According to the Office for National Statistics (ONS), price growth in England is being driven by London – where it reported prices rising at an annual rate of 9.7% – and to a lesser extent, by the south east (2.6%) and the east Midlands (2.4%), as Chart One shows.

Chart One: Regional variations in annual house price growth, July 2013

September 2013 chart 1 news & views 18

Source: ONS

The ONS concluded that house price growth overall "remained stable across most of the UK." The annual rate of house price increase in the UK in July nudged up 3.3%, from 3.1% in the preceding month.

But if London and the south east are excluded from the picture, the annual rate of increase in UK house prices drops from 3.3% to 0.8%.

The ONS index also shows contrasting fortunes for different countries within the UK. Prices were rising by 3.7% in England and 1.8% in Northern Ireland, but falling by 2% in Scotland and 0.7% in Wales.

House prices - diverging data

In reporting the ONS data, the Financial Times concluded that it showed "the diverging economic fortunes between the capital and the wider UK housing market."

However, house price indices have also diverged in recent times partly because methodological differences have helped produce contradictory results. 

The ONS index, for example, only includes transactions involving a mortgage, with cash-only purchases – which comprise a substantial proportion of sales – being excluded. Cash sales are, however, included in the LSL/Acadametrics index, which in its most recent figures showed a similar rate of growth to the ONS measure, at 3.2%. 

LSL/Acadametrics also publishes measures for transactions in Scotland and Wales, which showed that prices were falling at an annual rate of 1.1% and 1.6% respectively, reinforcing the picture of variable local conditions. It also reported growth in the volume of sales, with the number of transactions exceeding 70,000 for the second month in a row. 

Recent price movements

Indices operated by Halifax and Nationwide have also reported different rates of price increase, although both showed that prices remained substantially below their 2008 peak.

According to the Halifax index, prices in the three months to August were 5.4% higher than in the same period a year earlier. That was higher than July's annual 4.6% increase, and the highest annual rate since June 2010 (6.3%). However, the recovery shown by the Halifax index is only a very recent phenomenon, with the rate of price increase picking up from an annual rate of just 1.1% as recently as March 2013.

In reporting its numbers, Halifax concluded that "the relatively low level of mortgage payments in relation to income is supporting housing demand." According to Halifax, typical mortgage payments for a new borrower (at the long-term average loan-to-value ratio) accounted for 27% of disposable earnings in the second quarter of 2013 – the lowest proportion since 1999 and comfortably below the average of 36% over the past 30 years.

Meanwhile the Nationwide index showed that the annual rate of house price increase was 3.5% in August. Like the Halifax measure, however, the increase shown by Nationwide is only a recent phenomenon. As recently as spring, its measure showed that house price growth was broadly flat.

Nationwide argued that a number of factors appeared to be contributing to the recent upturn in house price growth. Consumer confidence had increased significantly in recent months, thanks to modest gains in employment and signs that the UK economy is finally gathering momentum.

It said: "An improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures such as the Funding for Lending and Help to Buy schemes, is enabling more people to take their first steps into the property market." Nationwide also pointed to our data suggesting that the recent upturn in activity has been driven by first-time buyers, who accounted for 45% of house purchase loans in the second quarter, the highest share since the series began in 2005.